Mutual enforceability of covenants

Mutual enforcement clause

Implied term that landlord will enforce the clause

Duval v 11-13 Randolph Crescent Ltd

[2020] UKSC 18

Summary

The existence of a mutual enforcement clause in a lease necessarily implied a term that the landlord could not take steps to put it out of his power to comply with the clause.

Facts

11-13 Randolph Crescent is a building converted into nine flats, each held under a long lease. The landlord is 11-13 Randolph Crescent Ltd, a company owned by all the tenants.

The leases of the flats contain the following clauses:

Clause 2.6: A qualified covenant by the tenant against alterations:

    “Not without the previous written consent of the Landlord to erect any structure pipe partition wire or post upon the Demised Premises nor make or suffer to be made any alteration or improvement in or addition to the Demised Premises.”

Clause 2.7:  An absolute covenant by the tenant against cutting into any walls or ceilings etc:  

    “Not to commit or permit or suffer any waste spoil or destruction in or upon the Demised Premises nor cut maim or injure or suffer to be cut maimed or injured any roof wall or ceiling within or enclosing the Demised Premises or any sewers drains pipes radiators ventilators wires and cables therein and not to obstruct but leave accessible at all times all casings or coverings of Conduits serving the Demised Premises and other parts of the Building.”

Clause 3.19:  A landlord’s covenant that:

    “… every lease of a residential unit in the Building hereafter granted by the Landlord at a premium shall contain regulations to be observed by the tenant thereof in similar terms to those contained in the Fifth Schedule hereto and also covenants of a similar nature to those contained in clauses 2 and 3 of this Lease AND at the request of the Tenant and subject to payment by the Tenant of (and provision beforehand of security for) the costs of the Landlord on a complete indemnity basis to enforce any covenants entered into with the Landlord by a tenant of any residential unit in the Building of a similar nature to those contained in clause 2 of this Lease.”

The tenant of Flat 13 (Mrs Winifred) asked the landlord for consent to carry out significant alterations to the flat. The works would involve, among other things, removing a substantial part of a load bearing wall at basement level. It was common ground that they would amount to a breach of clause 2.7 of the lease if not specifically authorised by the landlord.

Initially the Landlord was willing to grant the Licence but following objections from the tenant of 11G & 11H Randolph Crescent (Dr Duval) the licence was refused. However, following further evidence was presented the landlord reconsidered the matter and decided it was minded to grant a licence, subject to securing adequate insurance being put in place.

On two occasions Dr Duval asked the landlord to secure an undertaking from Mrs Winfield not to act in contravention of clause 2.7 of her lease by cutting or maiming any of the load bearing or structural walls within Flat 13. On both occasions, Dr Duval said that the landlord would be indemnified if legal action became necessary. As the landlord did not secure the undertaking Dr Duval issuing a claim against the landlord seeking, among other things, a declaration that the landlord did not possess the power to permit Mrs Winfield to act in breach of clause 2.7 of her lease.

Dr Duval also argued that the landlord had covenanted to enforce the absolute prohibition against certain works if requested to do so by another flat tenant. If the landlord could licence or waive compliance with what would otherwise be a breach of the alterations covenant, the landlord would have put it beyond its power to comply with its enforcement covenant. It was implicit in the enforcement covenant that the landlord would not put it beyond its power to comply, if and when required to do so.

Issues

The mutual enforcement clause did not expressly state that a breach would be committed if the landlord granted a licence to Mrs Winifred to undertake works that would otherwise be a breach of an absolute prohibition. The issue was therefore whether it was necessarily implied in the way the obligation had been drafted?

First instance

The judge found for Dr Duval. On appeal to the Central London County Court, the court found for the landlord. Dr Duval appealed to the Court of Appeal

Court of Appeal

The Court of Appeal held that the landlord would be in breach of its covenant by granting Mrs Winifred a licence to do an act that would otherwise be in breach of the lease – in other words the granting of the licence would put it out of the landlord’s power to enforce the lease obligations. The court therefore found in favour of Dr Duval and allowed the appeal.

Supreme Court

The Supreme Court unanimously upheld the Court of Appeal decision that a landlord giving consent to a flat tenant to carry out alterations beyond that permitted by its lease was in breach of the landlord's covenant, given to the other flat tenants in the building, that it would enforce the tenants' covenants in the flat leases within the building.

The Supreme Court held that:

  • The two alterations covenants in the lease were held to be quite distinct in purpose. Clause 2.6 (the qualified covenant) was intended to apply to day to day routine alterations that may be permitted with the landlord's consent, whereas clause 2.7 (the absolute covenant) was intended to apply to non-routine works that may be intrinsically damaging to the building and therefore require additional control;

  • Whilst the mutual enforceability covenant in clause 3.19 of the lease did not expressly say that the landlord cannot give its consent to works that would otherwise be in breach of a tenant's lease, such a term can be implied:

  • The purpose of the alterations covenants in clauses 2.6 and 2.7 and the mutual enforceability covenant in clause 3.19 are primarily to provide protection to all of the flat tenants in the building;

  • Each tenant would have known that the absolute alteration covenant in clause 2.7 of the leases would apply to all tenants and that under clause 3.19, and subject to satisfaction of certain conditions, the landlord could be asked to enforce the absolute covenant;

  • It would not give practical content to the obligation in clause 3.19 if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be in breach of it.

Citations

Lord Kitchin at paragraph 44:

“It is well established that a party who undertakes a contingent or conditional obligation may, depending upon the circumstances, be under a further obligation not to prevent the contingency from occurring; or from putting it out of his power to discharge the obligation if and when the contingency arises.”

And at paragraphs 53 to 55:

    1. "The purpose of the covenants in clauses 2 and 3.19 is primarily to provide protection to all of the lessees of the flats in the building. Each of those lessees would have known that every other lessee was and would continue to be subject to the same or similar obligations and, in particular, to the qualified covenant in clause 2.6 and the absolute covenant in clause 2.7. Each lessee would also have known that, under clause 3.19, the landlord would, upon satisfaction of the necessary conditions, enforce those obligations. Clause 3.19 would therefore have been understood by every lessee to perform an important protective function.
    2. What is more and as the landlord accepts, the first obligation in clause 3.19 is a continuing one with the consequence that the landlord is required to keep in place in every lease covenants of a similar nature to those in clause 2, including clauses 2.6 and 2.7. If a lessee threatens to carry out or has carried out an activity in breach of clauses 2.6 or 2.7 then, at the request of another lessee and on the provision of security, the landlord is obliged by the second part of clause 3.19 to take enforcement action.
    3. In my view it necessarily follows that the landlord will not put it out of its power to enforce clause 2.7 in the lease of the offending lessee by licensing the activity that would otherwise be a breach of that clause. The clause is an absolute covenant and, under clause 3.19, the complainant lessee is entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. As Lewison LJ said at para 27 of his judgment, it would not give practical content to the obligation if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be a breach of it.

Comment

Mutual enforceability provisions are typically found in residential flat leases. They are not normal in commercial leases.

This decision is a strong reminder that, even where the tenants are, in effect, the landlord, it may not always be open to them to agree that absolute covenants can be safely ‘ignored’. If they do so they (as landlord) will be in breach of covenant and subject to action by lessees who do not agree with a licence being granted.

 

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